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Budget Committees Draft FY 2010 Budget Resolutions

This week, the House Budget Committee (HBC) and Senate Budget Committee (SBC) passed their respective versions of the FY 2010 Budget Resolution (FY 2010 begins October 1, 2009). The budget resolutions include a spending and revenue framework for the next 5 fiscal years.

Both committees passed their respective resolutions on straight party line votes, with the Senate resolution passing 13-10, and the House resolution passing 24-15.

In general terms, both budget resolutions reflect the priorities President Obama laid out in his February budget outline--middle class tax cuts, health care, energy, and education -- although the congressional budget plans trimmed discretionary spending increases to reduce deficit levels.

The President requested $1.096 trillion in (non-emergency) discretionary spending for FY 2010. By comparison, the House resolution includes $1.089 trillion, and the Senate-reported resolution $1.079 trillion. This places the House-proposed nonemergency discretionary spending $7 billion below the President, and the Senate level $17 billion below the President. Even after trimming spending, the Senate resolution would still increase core (non-war) defense spending by 3.8% and nondefense discretionary spending by 7%.

The HBC budget plan calls for using the filibuster-proof budget reconciliation procedure to expedite health care reform and higher education funding, while the Senate would not.

More details of the HBC and SBC budget resolutions follow in the articles below.

Permanently Extending the Bush Tax Cuts at a $2 Trillion Cost

Revenue levels in the House and Senate budget resolutions are designed to accommodate the President's proposal to permanently extend the Bush tax cuts for taxpayers earning less than $250,000 per year. (These include the 10 percent tax bracket, the child tax credit, marriage penalty relief, and education incentives.)

The tax cuts are currently scheduled to expire at the end of 2010.

The cost of the extension is more than $2 trillion over 10 years, according to CBO.

The House resolution includes a provision (section 401) that seeks to exempt extension of the middle class tax cuts from the PAYGO (pay-as-you-go) requirement, if PAYGO is enacted into law (PAYGO is currently a congressional rule). The Senate has no similar provision.

The President's Budget calls for comprehensive
health care reform to rein in skyrocketing health care costs and cover the uninsured.

The President calls for a $634 billion downpayment on
health care reform, funded by $316 billion in Medicare and Medicaid
reforms, and $318 billion in new revenues from limiting tax deductions for upper income earners.

The House and Senate budget resolutions call for health care reform as a general proposition, but don't address the overall size or extent of healthcare reform or how to pay for it.

The Senate resolution requires only that health care reform be "deficit neutral" over the next 11 years, that is, total new spending on health care over the 11-year period must be offset
by spending cuts and/or tax increases over that period. This type of mechanism is known as a "reserve fund." It does not require action, but provides a budgetary placeholder that allows spending and revenue levels to be adjusted at a later time to accommodate a new deficit-neutral program. (Important note: Typically, reserve funds would require legislation to be deficit neutral over 6 years and over 11 years. The Senate's health care reserve fund only requires offsets over the 11-year period, recognizing that health care reform is likely to have a net cost up front, with savings not accumulating until later years.)

A key difference between the HBC and SBC plans is that the House plan would allow for use of thefilibuster-proof "budget reconciliation" process to facilitate passage of health care reform. The SBC resolution would not
use reconciliation, and health care reform would therefore be
susceptible to a filibuster under the Senate approach -- with 60 votes being required to
overcome a filibuster.

The key strategic question of whether reconciliation will be used to expedite health care reform will be decided during a House-Senate conference committee on the budget resolution in April. As reported by Congressional Quarterly, House Speaker Nancy Pelosi (D-CA) said, "I believe it is absolutely essential that we come out of this year with substantial health care reform legislation. That is best secured by having reconciliation in the package." Senate Majority Leader Harry Reid signaled openness to including reconciliation in the final budget resolution, saying "we're taking nothing off the table."

What About the Long-Term Fiscal Outlook?

Budget experts across the political spectrum agree that the U.S. is facing a long-term budget quandary of immense proportions. By 2030: Medicare, Medicaid, Social Security, and Interest Payments are projected to consume all federal revenues. The key reasons for this bleak outlook are the rapid increase in health care costs and the retirement of the baby boom generation -- which together are causing Medicare and Medicaid to grow at an alarming pace (and to a lesser extent, Social Security.)

The President's budget plan acknowledges the importance of focusing on the long-term outlook by transmitting a budget plan that covers 10 years (fiscal years 2010-2019).

However, both the HBC and SBC budget resolutions cover
only 5 years. This short-term focus is imprudent since the federal budget is on an unsustainable path that worsens over time -- and the longer policymakers wait to squarely address the budget gap, the more difficult and costly it will be to correct.

Other Key Provisions in the Budget Resolutions

Global Warming / Energy Investments: The
President's budget proposes selling carbon emission allowances through auction as part of a "cap-and-trade" system to cut greenhouse gases dramatically by 2050. Sale of the emission allowances (estimated at $646 billion over 10 years) would be used: (1) to pay for $15 billion per year in renewable energy investments; and (2) to make the President's stimulus bill tax cuts permanent in order to offset the costs of higher energy prices. Both budget resolutions would establish reserve funds to allow spending and revenue levels to adjusted later on to accommodate global warming and energy initiatives, provided they are deficit neutral. Two important points to highlight:

Unlike the Senate's health care reserve fund that is only required to be deficit neutral over 11 years, the global warming / energy reserve fund would have to be deficit neutral over 6 years and over 11 years; and

Although the House Budget Committee opted to use the filibuster-proof budget reconciliation mechanism to expedite health care reform, it chose not to use the special procedure for global warming / energy legislation.(The energy price increases that would result from global warming "cap-and-trade"legislation is making some Democrats nervous, despite the Administration's proposal to offset higher energy prices with middle class tax cuts.)

Education: The President's Budget would make Pell grants (for college education) an entitlement (i.e. not subject to annual discretionary spending decisions), would increase maximum awards, and would index the awards to increase with inflation. This would be partially offset by originating all new student loans in
the federal government's Direct Loan program, thus eliminating bank subsidies. The House-reported budget resolution would expedite consideration of this initiative by using the filibuster-proof reconciliation mechanism, while the Senate would establish a reserve fund to adjust budget levels for the program provided it is deficit neutral over 6 years and 11 years.